SME Restructuring: A Handbook for Company Directors

Many SME directors in the North East are trading through a combination of rising costs, expensive borrowing, and reduced customer demand. Businesses that successfully trade through challenging periods like these are typically the ones that proactively review how they operate. That is essentially what restructuring means in practice. From a simple cost-cutting exercise to a complete overhaul of business operations, company restructuring ranges in scale from minor to major improvements. 

What does restructuring mean for a small business?

At its simplest, restructuring means taking a fresh look at how a business operates and making changes to put it on a firmer footing. For most SMEs, that involves making small changes. It might mean renegotiating a contract with a key supplier to account for higher operating costs since terms were last agreed. It could mean switching to a more competitively priced finance option if an existing loan or overdraft is costing more than necessary. Or it might simply mean reviewing which parts of the business are performing well, which are declining, and fine-tuning operations accordingly. 

When company directors approach me, they often associate restructuring entirely with insolvency. It’s worth reiterating that restructuring is not the same as insolvency. Many profitable businesses restructure every year to remain financially healthy. 

Trading pressures worth paying attention to

Every sector experiences its own pressures. In construction, it's the combination of material costs and tighter margins on fixed-price contracts. In retail and hospitality, it's footfall that hasn't quite bounced back alongside rising wage and energy costs. In manufacturing, supply chain delays are still catching businesses out on lead times and pricing.

A business does not need to be in serious financial difficulty for these to be worth reviewing:

● Costs rising faster than they can be passed on to customers

● Cash flow becoming tighter month to month, even where the business remains profitable on paper

● Supplier or contract terms agreed a year or two ago that no longer reflect current costs

● Wage and overhead costs increasing faster than revenue

While a business may not be in serious financial difficulty, reviewing how things are set up early can be beneficial when there are still plenty of options available.

What are the restructuring options?

For most businesses, operational restructuring is the first and often only step required. This may involve renegotiating supplier and lease terms, adjusting staffing to match current demand, refinancing borrowing, or reworking pricing. This may be sufficient to restore stability.

Occasionally, a business requires something more significant, and that is where a controlled sale or formal process comes in. Options such as administration or a pre-pack sale are often associated with failure, but in practice they are rescue tools. They can protect jobs, preserve the value of a business, and provide continuity for customers, suppliers, and creditors, even where the original company does not survive.

This is a scenario that I commonly see as joint administrator. In one instance, a long-established, family-run business in the North East had built a strong local reputation over two decades, but rising costs and tougher trading conditions put real pressure on cash flow. Working with the directors, we found a buyer through a pre-pack sale, saving most jobs and letting the business continue trading under new ownership, with its reputation and family legacy intact.

In another, a specialist testing business had been hit by delays to several major contracts, creating financial strain, despite ongoing support from its directors. After marketing the business, we agreed a sale with the existing management team, preserving every job and delivering a strong outcome for creditors too. 

While neither business set out to enter a formal process, by doing so, they helped prevent job losses and reputational damage.  

What does this mean for company directors?

Even well-run businesses can be put to the test during times of economic uncertainty and a cost of living crisis, or due to regulatory changes, tax reforms, or sector downturns. Reviewing how a business is structured while there is still room to take mitigating action is one of the most useful things a director can do, sooner rather than later.

Gillian Sayburn is a Partner at BTG Begbies Traynor and a licensed Insolvency Practitioner with extensive experience supporting North East SMEs with company insolvency and restructuring. She is also a Chartered Certified Accountant.